Thinking of Becoming a Real Estate Investor

Thinking of becoming a real estate investor? The first thing that will make this endeavor achievable is that the investor must understand his or her market. There are two different types of markets. One type of market is a seller’s market, and the other type of market is the buyer’s market.

 

The Buyer’s Market

In a buyer’s market, the buyer must be aware that being in a buyer’s market doesn’t make the buyer’s job any easier. It just gives the buyer more flexibility. Remember in a buyer’s market, there may be several buyers for one property or only one buyer for a property. If there are no other buyers for a property by virtue of the length of time the property has been on the market then a low offer may come in to the seller. Sorry sellers. However, sellers that do not mean that the property has to given away, but it may mean that the seller could have to settle for less than the seller anticipated selling his or her home for.

 

Another thing that makes a buyer’s market advantageous to the buyer and not to the seller is that there are a lot of homes to choice from that may meet the buyer’s criteria.

 

The Seller’s Market

In a seller’s market, on the other hand, the seller has the upper hand. The seller can price his or her home significantly above market value and negotiate the purchase price to exact what the seller wants the purchase price to be. Sorry buyers. If the buyer really wants a home in a seller’s market, the buyer must succumb to the seller’s terms in order to get the home. As a matter of fact, in a seller’s market the inventory of homes for sale that may meet the buyer’s criteria are fewer.

 

Choosing the Property

Once the investor has ascertained the type of market he or she is in then the investor is ready to buy. Now, the investor must determine what type of properties work best for him or her. That means does the investor want to purchase single family homes or multi units? With single family homes, it is very important to determine what will happen if the property is vacant. The investor must determine if he or she can pay the mortgage if there is a mortgage on top of other expenses if there is not a tenant or the tenant is not paying. In those calculation must be the upkeep of the building to include utilities and maintenance not only the mortgage, taxes, and insurance. If that is affordable then move forward. If not, then look at those options with a multi unit and determine which scenario works better for the investor’s financial situation if there are vacancy. Do not be fooled that there will not be vacancy during sometime of the investor’s ownership, so it is best to look at that now rather than later.

 

Now, that the investor has determined which property type works better for his or her financial situation, the investor can now move forward. Another thing that the investor must consider is that it is always must easier to rent three plus bedrooms than a two or one bedroom.

 

Buy and Hold

Up until now, the suggested scenario for the investor has been about the possibility of buy and hold. What is buy and hold? Well, buy and hold is when the investor buys the property and hold it to rent it for a pre-determine number of years. It is important to note that in order for this to be successful the investor must consider the area in which the property is located. The investor wants to purchase a property that is desirable to both renters and homeowners. By doing this, it makes it easier to sell for a profit when the investor determines that he or she wants to sell.

 

Fix and Flip

There is yet another way to be a real estate investor and it is called fix and flip. Fix and flip is fixing up the property to flip or sell it to someone else. Under the fix and flip, if the new buyer is acquiring financing to purchase the property then the investor will have to have owned the property for at least six months to be able to sell. Be aware that some lenders may require that the investor owned it longer. Incidentally, due to recent market changes the latter is no longer true.

 

The investor may be wondering how the financial institution of the buyer knows how long the seller/investor has owned the property well the lender requires a clear chain of title. The chain of title will show if there is any liens and/or judgment, but it also shows the chain of ownership. The chain of title shows the dates of transfer of title or ownership. The chain of title also let’s the lender know if the property is marketable and free to transfer ownership. The investor may also be wondering where the chain of title comes from? The chain of title comes from an abstract of the title. An abstract of the title is a condensed history of ownership of the property which is gathered by the abstracter through public record.

Once the Title Company and lender determine that the property is free and clear to sell. The lender needs to know that the buyer is free and clear of liens and judgments, as well. The reason is that the liens and judgment that the buyer may have may attach to the property, so a search is done on the buyer by their name and social security number. By the way, the liens and judgment are a concern to the lender is that those liens or judgments can super succeed the lender’s mortgage; the lender wants the mortgage to be first on the property. If judgments or liens do show up for the buyer because the buyer has a common name, then buyer completes a name affidavit that can clear up most information that may come up. The name affidavit has the buyer’s name, social security number, marital status, last five years of addresses, etc. This information is used to rule out judgment or lien that may appear.

 

Ways to Sell the Investment Property

Let’s discuss different ways to sell the property under a fix and flip scenario. The seller/investor may consider a lease option. Under a lease option, the seller must do a judgment search on the potential buyer/tenant before attaching them to the property because the judgment and or liens on the potential buyer/tenant may attach to the property. As a seller, it is apparent that the investor do not want to pay someone else bills, so pay to have the search done.

Once the search is complete and it is determined that the potential buyer/tenant does not have any judgment and/or liens draw up the lease/option contract. Consult an attorney when doing this to ensure all options of ownership and releasing option are examined.

Under most lease agreement, the buyer pays a non-refundable deposit. This deposit is negotiated between the parties and credited to the buyer at time of purchase. Under some agreement, the deposit is credited to the buyer only if the buyer does not default on the lease agreement and exercise their option before the expiration of the lease agreement.

The seller will also credit the buyer a certain portion of the monthly lease payment that the buyer/tenant makes in a timely manner to the buyer at time of closing. However, the buyer/tenant shall not receive any credit for monthly payment made after the due date specified in the contract.

Incidentally, it is important to note that the buyer/tenant can only exercise their right to purchase in writing. It is also important to note that the option to purchase is not transferable.

It is important to work with the potential tenant/buyer to help them clear their credit issue by referring them to a professional that will help the tenant/buyer determine what need to be corrected on their credit and keep up with the tenant/buyer progress on doing what is required to correct the tenant/buyer’s credit. The reason this is important for the life of the lease the investor can not sell the property without proper notice to the tenant/buyer.

 

Getting Back to the Basics

Now, that the investor’s option have discussed let’s get back to some basics. Let’s say the investor buys a fixer upper. With a fixer upper, there are not many insurance options or so the investor may think. The investor may go to one insurance company and the company may tell the investor that the insurance can not insure the new purchase until after repair, and the investor still decides to move on with the purchase. The investor does not have his or her interest in the property insured. Well, there are companies that offer the insurance the investor needs. The investor just needs to know what companies offer it and what that type of insurance is called. It is called builder’s risk or a vacancy policy. The companies that offer these policies are Allstate, American Family, and Farmers Insurance. Allstate’s policy covers the property for a year, but it does not cover the investor once the investor has a tenant in the property. Once a tenant is in the property you must have a landlord policy.

American Family’s policy covers the property for three months, and then at the end of the three month the investor either buys another three month policy because the property is not ready for occupancy or gets a landlord policy.

Once the investor’s insurance is in place or even before purchase find out about permits for the jobs needed for the fixer upper. The investor needs to do this so that jobs will not be stop by the city inspector and the investor loses money as a results. This is very important in a fix and flip scenario because the investor stands to have to pay expenses that the investor did not calculate for. This is also called holding cost, so do research that can not be spoke to enough research, research, research.

 

 

New Listing – 1014 West 151st St East Chicago, IN

$59,900

Your search is over this 5 bedroom 2.5 bathroom home can be yours at this affordable price.  Call for your appointment today.  This one will not last.  Call Serena at  219 803 4489 or 219 314 3958.

What Has the IRS Done For Me Lately?

Paying Taxes Does Good For Us

Typically, when most of us think of the IRS, we get an unpleasant taste in our mouth or a pain in our stomach, but we do not think about what paying taxes provide for us.  The Gov Gab  blog did a great article http://blog.usa.gov/roller/govgab/entry/thanks_to_the_folks_at about all of the departments that our taxes provide our hard earn money too.  Those departments of the government make our lives better. 

What departments you may be asking yourself?  Well, the US Postal Service do a lot for a 42 cent stamp including getting our mortgage payments to the mortgage company, getting our pay check and social security checks to our door, etc.   Another department is the social security, no matter what we think of whether the money will be there when we retire or not we are grateful for the opportunity to worry if the money is available.  So you see the IRS is doing us some good.

Therefore, we all need to have a better outlook for the IRS because of all they do to help us have a better life.

Is a Short Sale The Answer?

There is a Formula to Whether Your Short Sale will be Approved

I have fifteen short sales that I am working on of those fifteen all of the lenders are stating that they need to net a certain amount.  I was beginning to think this was an isolated case until I came across the article at http://latimesblog.latimes.com. 

I discovered from this article that if the seller has a FHA loan, the lender “requires a net of 82% of current market value.  I was relieve to find out it is a formula that the lenders use.

The article went on to state that VA loans are required to net 88% of the current value.  Still yet, the conventional loans are required to net between 78% to 85% of the current value. 

As a homeowner who needs to sell it may be helpful to understand this formula.  Remember, a short sale can save your from a foreclosure as long as the lender can yield enough money from the sale.

Reducing Cost is It a Sin

Recently, I did several post on appealing your property taxes assessment.  Well, today I found an informative podcast at http://www.pepperpodcasts.com/pepper_podcasts/2008/11/pursuing-realestate-tax-assessment-appeals-in-a-down-economy.html that recommend pursuing property tax re-assessment for businesses in this market.  This is along the lines of what I was recommending for your residential properties.  However, I did not mention business properties and the advantages to pursuing a re-assessment of those property taxes.   Sharon and Dusty give great pointers for business owner to help them determine if a re-assessment is necessary for them.    They go on to explain what is a good sign that the owner should consider a property tax re-assessment.

Sharon and Dusty further explain how businesses, industries, and apartment owners need to consider their vacancies and the environment to determine if they need to do a re-assessment.

Lastly, Sharon and Dusty explain how to go about doing the re-assessment.

Good vs Bad in the Real Estate Market

Real estate has had several changes in the last couple of years.  Are those changes for the better or worse?

In most cases, those changes have been for the better.  Despite the tighten of mortgage qualification for getting a loan, a homeowner can rest assure that they can afford the home that they have chosen.   In other words, the lender is ensuring that the income to debt ratio is not dispropositioned to what you can afford to pay.  In the past, only the items on your credit report were considered when purchasing a home not the part of your income you use to run the home ie utilities, grocery, etc.  Now, with the crack down all of that information is considered.

Another way that the changes in real estate has improved real estate is that the value will never again get so over-inflated that individuals can not own a home.  In recent years in some states the only way an individual could own a home was to have an interest only loan.  Those loans are not the best choice if you do not know how they work.  Those loans have negative amortization.  With negative amortization, the homeowner will be forced to make a balloon payment to catch up the prinicipal payment some time in the life of the loan. 

Another important change that this change in real estate has brought is education of the consumer.  Never before has there a need for a revolution to educate the consumer on mortgages, real estate, and even insurance.  This has always been needed, but now more professional are using it.  It has been a  long time practice of mine to include that because an educated consumer can make an educated decision about a purchase that may be the largest one that they make in his or her life time.  It is our responsibility as professionals to empower the consumer with knowledge and not keep things behind closed door.   Thinking about the financial health of my clients have not only made them my clients, but my friends and lifetime clients. 

Lastly, all in all the negative of this time far outweigh the bad, but I wanted to reflect on the good.    Before you take out a loan review your credit, learn about the market, ask questions, and above all read what you are signing.

New Listing 3877 Colbourne Street Hobart, IN

$28,500 or best offer. 

Priced to sell bring any reasonable offer.    Great investment for any portofolio.

Does Governor Daniels Have A Reform for This?

Indiana is finally taking steps to help homeowners that are dealing with foreclosures.

What prompt the state to consider legislature for homeowners facing foreclosure is the alarming increase in foreclosure in Marion County.   The foreclosure rate in Marion County increase by 13 percent to a record high of 10,116 properties.  Consequently,  this is only one county statistics it states to reason that the rest of the state’s foreclosure rate has increased by that much or more. 

Even though it seems to be late in the game the state is taking a strong and forceful stand against further damage from the exponential amount of foreclosure through the state.  The state is proposing changes such as,

• notification timelines for renters of properties that are undergoing foreclosure
• avoid companies that acting on the behalf of the mortgage company to foreclosure
• enforcing mediation between the homeowner and mortgage company before the property goes to foreclosure

The above changes to legislature is a welcome and much needed change to help homeowners stay in their homes.  The changes in and of themselves will not solve the problem overnight it will take alot to turn this crisis around.

What is a Land Contract?

The land contract is intended to be a short term seller financing agreement between the seller and the buyer.  The buyer agrees to purchase the property for a pre-determine amount, and the seller allows the buyer to pay in installments over a specific period of time.  As a result of the seller providing the finance the seller still retains title and deed to the property.  The seller allows the buyer to take possession of the property.  The seller may also require the buyer to pay property taxes and homeowners insurance as part of their agreement.

The terms of the land contract are very important.  It is equally important to make sure that any agreement reached be in writing. 

The land contract gives the occupant equitable interest in the property, as well. 

It is also important to do a judgement and lien search on the occupant before attaching his or her name to the property.  The land contract is a sale and will close and be record just as any other sale.

Consider Your Federal Income Taxes When Buying a Home

Can you believe that buying a home is a big financial decision?  Can you guess why?  Did you know that the purchase of a home can affect your federal income taxes?  How you ask?  Let’s examine.

In recent years, many mortgage brokers have convinced buyers to commit to large loans with large interest rates.  The mortgage brokers, however, did not discuss the financial burden and/or the federal income tax consequences. 

Misconception about Mortgages

Some buyers came to the mortgage broker asking for or under the misconception that having a higher mortgage interest rate would give them higher write offs on their federal income taxes.  However, many of those same buyers discovered at tax time that due to alternative minimum taxes the write offs were not what they expect and they did not reduce their federal income taxes at all.

Still yet, others did not consider that the pre-approval they received did not account for their utilities, grocery bill, clothing, entertainment, etc. as a result the purchase of their new home became financially overwhelming very quickly.  The reason for this is the pre-qualification only evaluates bills and credit that is reported to the credit bureau.  It does not reflect all of the expenses necessary to operate a home like the utilities, grocery bill, entertainment, etc. 

Consider an Accountant Before Buying Your Home

If you are concerning purchasing a house contact your financial advisor or accountant, then the mortgage broker, then the Realtor to avoid most of the financial mistakes that are plaguing the market right now.  If you already own your home consider contacting a financial advisor or accountant before refinancing your home, as well.

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